The Heathcare Reform Tax: It’s Your Job on the Line

The healthcare reform legislation is being touted by many as the best thing to come along in many years for the American people. But not everyone is happy about its passage, and it carries a hefty tax that will hit many of you close to home. Since the debate began, I have quoted several device company CEOs who were concerned that the ­$20 billion device tax would be detrimental to the device industry. It seems that our elected officials believe this to be an acceptable price to pay. And its consequences were minimized.

Sherrie Conroy

April 2, 2010

3 Min Read
The Heathcare Reform Tax: It’s Your Job on the Line

Even now, the effect on innovation and jobs is being downplayed. For example, White House advisor Valerie Jarret recently told ABC news, “What [businesses] are going to have to write off is nothing compared to the enormous financial benefits to those very same companies by health insurance reform. On balance, business will come out way ahead.”

But the industry and its supporters see a very different outcome. “This bill is a jobs killer,” Ernie Whiton, chief financial officer of Zoll Medical Corp., recently told The Boston Herald. And, according to an article in the San Francisco Chronicle, “The new tax­—set to begin in 2013­—has spurred Medtronic Inc. of Minneapolis to warn of layoffs, and other medical device manufacturers to talk about slimming research and development budgets to offset higher costs.”

The executives at device companies seem to be in agreement. “It’s a big negative,” Jerry Cirino, chairman of Depew optical products manufacturer Reichert Inc., told The Buffalo News. “They had to go someplace to find a way to pay for this debacle. Medical devices of all kinds are going to be taxed. And it’s not on your profit from selling those devices. It’s on your sales. That’s got to be covered somehow. We have the option of trying to pass on some to our distributors and our end-user customers—­ophthalmologists and optometrists. That’s always a difficult thing to do.”

The chairman of Zoll Medical, Richard Packer, told Fox News on March 30, “It’s pretty scary. Our fair share of this tax on this year’s revenue will be about ­$7.5 million. To put that in context, our company last year only made about $9.5 million, so it essentially moves our company to a break-even position.” Answering the question about the cost to the device company’s customers, Packer said, “So, on a $10,000 device, it is going to be $250–$300. For smaller devices, it would be about $40 or $50—if we’re able to pass it through [to ­customers].”

In the same interview, Massachusetts senator Scott Brown (R–MA) called the tax one of the bill’s many problems. Brown had sponsored a motion to kill the device tax, but it was voted down. “Anytime you’re going to raise taxes on businesses, especially what we’re talking about today—medical device companies in ­Massachusetts—we’re going to lose jobs....I think they need to focus on fixing what’s wrong with this bill.” He also said that if this tax passes, “it will put a lot of people out of work. Our businesses and people are going to be hurting for many years to come.”

Packer told the news agency that he hopes the tax will not cost his company any jobs. “Zoll is a very resilient company and that’s obviously our last choice, but at the very least, it’s going to mean fewer jobs that we can create so it is a major problem for us.”

Erik Paulsen (R–MN) has called for the repeal of the tax on medical device manufacturers. In his blog, he writes, “Minnesota is one of the largest medical device alleys in the country, with tens of thousands of jobs in the sector. We can’t afford lost jobs or stifled innovation, which is why I tried to remove this tax before the healthcare bill was voted on last weekend.” He adds, “Despite multiple warnings about the negative impact of a tax on the tools of modern technology, the tax was passed anyway—and the results are already looking quite troublesome.” In testimony before the House rules committee, Paulsen had testified about the harmful effect on jobs and innovation. His concerns fell on deaf ears, it seems. The tax is now a reality, but it’s never too late to make your voices heard. It could be your job that’s on the line.

Sherrie Conroy for the Editors

Sign up for the QMED & MD+DI Daily newsletter.

You May Also Like